Appraisal ratio - Reading 35 Example 11

CFA Level III Portfolio Management
#1

Hi guys! I was comparing exercise 3 vs 5 in Example 11 (page 221 - Reading 35), they seems very similar then I tride calculate the non-systematic risk for Exercise 5, with the formula described in Solution 3 (i.e. not using the R2)

I can’t put the formulas here but I’m considering: (i) 14% for the portfolio standard deviation (ii) 0,90 for Beta (iii) 16% for the market standard deviation

(14% x 14%) - (0,9 x 0,9) x (16% x 16%) = 0,00114 vs 0,007056 of the solution 5

I’m I wrong in something?

Many thanks!

Ste

#2

I second ste79’s question.

I understand that (1-R2) is the unexplained part or the unsystematic risk.
But what is wrong with the beta approach and most importantly, why two approaches lead to different risks?

#3

That’s the point! Apparently the two questions are identical then the two approaches should lead to the same results. I’ve sent an email to CFAI

#4

Hi Ste79 … i was about to write the same question …
i tried it like you, using the formula in question 3 and of course i reached the same answer as u.

have u found any clarification for this?

#5

Hi Gary! Apparently they were wrong and should be reported in the errata.

Bye

Ste

#6

I don’t see it in the errata.
Any wise comment on the topic?